How electric cars explain GMs layoff shocker

General Motors, the biggest of the American carmakers, does not want to compromise on investing in the mobility of the future. But the commitment to electric cars has come at the cost of 14,000 workers whom it has laid off across US and Canada.TNN | November 30, 2018, 16:24 IST

Highlights

General Motors laid off 14,000 workers across US and Canada lately,

It plans to invest the money it saves from the layoffs into developing. NEW DELHI: General Motors, the biggest of the American carmakers, does not want to compromise on investing in the mobility of the future. But the commitment to electric cars has come at the cost of 14,000 workers whom it has laid off across US and Canada.

The move could backfire, however, as US president Donald Trump has warned the company that it would end the subsidies that incentivise buyers to go for electric cars. Here’s a look at why GM thought setting these factories to idle was a good idea and the bet it is taking on backing electric.

ELECTRIC CARS LOOK ATTRACTIVE, BUT COULD CHANGE

US offers a $7,500 tax credit to buyers of battery-powered and plug-in hybrid vehicles, but only on the first 200,000 electric vehicles sold by any carmaker. After the 200,000 threshold, the tax credit falls to $3,750 for six months and then to $1,875 for an additional six months. Beyond that, there is no tax credit. GM says it has sold about 1,90,000 such cars and will pass 200,000 early next year. So, it cannot fully rely on the incentive, especially when the Trump administration is opposed to these and has threatened to withdraw it.

Of the five factories in North America where GM is freezing production, three are assembly plants, all of which make cars whose sales have plummeted. Production at one of these factories fell by more than half last year from 2016, seeing it operate a single, eight-hour shift daily. But car plants must ideally operate two shifts to generate profits.

Tesla is the only carmaker to have sold more than 2,00,000 electric cars. At the end of this year, the tax credit on Tesla vehicles falls to $3,750. While the Elon Musk-led company has proved that there is a market for pricey electric cars, it has not yet shown that it can make money selling these.

LOW GAS PRICES ARE MAKING BUYERS THINK BIG

Amid low gas prices, more American buyers are going for SUVs and the factories being shut down all made sedans and small cars that have seen a big dip in sales

THESE PLANTS MAY NOT BE CLOSED FOR GOOD

GM said the plants are now “unassigned” — that is, they have not been assigned new vehicles to make after ceasing production in 2019. Some of electric vehicles that GM plans to roll out in two to four years could end up being produced in one or more of the three idled plants.

WILL GM's ELECTRIC BET PAY OFF IN THE LONG RUN?

That’s not very certain. While electric car sales are picking up, the numbers are not large enough to turn in a profit. The Chevrolet Bolt, a GM electric car, has seen only 13,000 models sold. GM has poured billions of dollars into autonomous driving, but there’s plenty of competition with Ford, Uber, Lyft and Waymo, owned by Google-parent Alphabet, all working on driverless cars.

GM’s NOT REALLY STRUGGLING, BUT...

The company continues to report billions in profits, thanks to pickuptruck and SUV sales, but it is losing money on small cars and sedans. It plans to invest the money it saves from the layoffs into developing.

In fact, segment leaders like Maruti Suzuki, Tata Motors and Hero MotoCorp have reported de-growth of 34.3 per cent, 45 per cent and 20 per cent, respectively giving a clear indication of a prolonged slowdown in the sector.